Friday, May 11, 2012

A Revenue/Pension Discussion with Eric Zorn, Pt. 3

To Glen,

As you know, there is substantial
and vigorous disagreement among very learned lawyers about the meaning of the
pension clause in the Illinois Constitution. Does it mean only that benefits
already earned shall not be diminished? Or that benefits earned in the future
must be calculated based on the most advantageous past pension formula?

My view, which is based neither on
case law nor an educated analysis of Constitutional intent, is that future
pension benefits based on future service ought to be as re-negotiable as is
future salary based on future service.

I can see why you don’t like my
view --- it suggests pension plans shouldn’t be the secure super-contracts
teachers have long assumed they are – but I don’t see why you find it morally
and ethically objectionable. Most of us face less than certain futures and must
deal with changing circumstances – suddenly higher taxes, for example, foisted
on us by politicians whose lives have become a Hitchcockian nightmare of
chickens coming home to roost.

In theory, public pension systems
are a fine idea. In practice, they’ve inspired politicians to saddle their
successors and taxpayers of the future with additional burdens and investment
risk, paying for today’s goodies with tomorrow’s money (or, in the case of
suburban school districts and municipalities, other people’s money). Teachers
unions have showered these same profligate pols with millions in contributions.

Meanwhile, the Tribune editorial
board, which teachers seem to believe is a co-conspirator in all this, has been
sounding the alarm: The state “skips a pension fund payment to help meet one
year's operating expenses, never bothering to wonder how it will meet those
same expenses next year - let alone get the cash to replace the money it borrowed,”
said a March, 1991, editorial. “Maybe if legislative leaders are forced to deal
with today's honest numbers, rather than buying with the promise of money to
come tomorrow, they can make a frank assessment of the state's revenue
situation.”

My ideas for boosting revenue to
pay our bills and meet future needs include graduating the income tax,
expanding the goods and services subjected to the sales tax and taxing
retirement income.

It also includes pension reform
that outlaws payment skipping, makes the contracting entity responsible for
setting benefit levels and making payments and adjusts terms and benefits going
forward to keep the systems solvent and prevent the sudden, whopping tax
increases that will be needed to continue sustaining the unsustainable.

Eric Zorn

Dear
Eric,

We
agree that a graduated income tax is needed “for boosting revenue” and for
addressing the state’s structural flaws in its tax system.Because the State of Illinois diverted
revenue that should have funded the pension systems and cannot evade the
unfunded liability, a practical response by policymakers should be the creation
of a graduated tax rate used by 43 other states in this country. This is even
more crucial since General Fund spending has been capped.

What’s more, if policymakers shift the normal costs to the pension
system to local school districts and universities, it “would only mean that an
even higher proportion of school district’s revenue would come from property
taxes” (The Center for Tax and Budget Accountability, CTBA).Representative Darlene Senger told me
she thinks this is a “bad idea.”

It appears
we also agree policymakers need to design a broad-base tax base. “A majority of states apply their
sales tax to less than one-third of 168 potentially-taxable services. Five of
the 45 states with sales taxes impose them on fewer than 20 services… Research
suggests that purchases of some services do not fall as precipitously as
durable goods purchases do when the economy slows nor rise as rapidly when the
economy is booming.” States that do not tax services, such as Illinois,
“probably could increase [its] sales tax revenue by more than one-third if [it]
taxed services purchased by households comprehensively” (The Center on Budget
and Policy Priorities).

Consider the fact that a
broader-based taxation system would provide a decrease in taxes for low-income
and many middle-income families. Taxing services alone “would generate enough
revenue to stabilize the General Revenue Fund and prevent structural deficits
that lead to cuts in basic needs and social service programs” (CTBA).

To achieve
fairness or a “shared sacrifice,” policymakers also need to consider putting an
end to “corporate welfare,” in particular, extortive tax breaks and loopholes. The Institute on Taxation and
Economic Policy maintains that the top five percent of income earners in
Illinois pay the least amount of sales, excise, property, and income taxes
because of federal deduction offsets or substantial tax savings (regressive tax
loopholes) from itemized deductions, such as capital gains tax breaks and
deductions for federal income taxes paid that are coupled with a flat-rate
structure.

We both
agree there needs to be a required annual payment from the state to the pension
systems; the debt needs to be amortized for a longer frame of time just like a
home loan that is amortized (CTBA). The ill-conceived ramp-up design (Public
Act 88-0593, FY 1996) to pay down the state’s debt demonstrates the dangers of
acting without careful or more systemic planning.

Lastly,
Eric, the Chicago Tribune of 1991 is certainly not the Chicago Tribune of
today; for everything
else that you mentioned, my view is the courts will rule to uphold a state and federal constitutional ban on diminishing or impairing contracts, just
like they have in Arizona, New Hampshire (February 15, 2012) and Florida (March 6, 2012). In regard to your
comment that “teachers’ unions have showered… millions in contributions,”
perhaps corporate lobbyists and Citizens United, et al. should be our next
discussion.

1 comment:

I would like to say to Eric that it really only takes a few minutes of research to determine that there is indeed no widespread disagreement among "learned lawyers" about the meaning of the pension clause. Indeed, the opposite is true; there is widespread agreement, buttressed by seven court decisions.

The existence of a two-page opinion to the contrary, written by a firm hired to argue that position, hardly constitutes a widespread disagreement. Lawyers make all kinds of cases; that's what they're paid to do.

But scholars, judges, and basically everyone looking at this thing in an honest way are in widespread agreement. Read the history.

Teacher/Poet/Musician

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Persona

A writer must “know and have an ever-present consciousness that this world is a world of fools and rogues… tormented with envy, consumed with vanity; selfish, false, cruel, cursed with illusions… He should free himself of all doctrines, theories, etiquettes, politics…” —Ambrose Bierce (1842-1914?). “The nobility of the writer's occupation lies in resisting oppression, thus in accepting isolation” —Albert Camus (1913-1960). “What are you gonna do” —Bertha Brown (1895-1987).